Reducing the tax exemption for pensioners could lead to a financial loss of 1.4 million dollars
Flat-Rate Retirement Deduction in France Offers Modest Tax Relief
A new flat-rate retirement deduction of €2,000 has been proposed in France, set to reduce taxable pension income by a fixed amount regardless of total income. This measure, aimed at providing some tax relief to all retirees, disproportionately benefits retirees with lower pension incomes, improving their net income relative to wealthier retirees.
According to a study by the Directorate of Research, Studies, Evaluation and Statistics (Drees) published on July 31, the average gross pension has decreased by 1.2% when inflation is taken into account between 2022 and 2023. However, the new deduction could potentially increase the pensions of 1.5 million small retirees.
The flat-rate deduction adds a fixed additional relief on top of existing deductions, such as the automatic 10% deduction on salary and pension income (capped at €14,426 in 2025) that already reflects professional costs. However, because it is a flat amount, higher-income retirees who pay taxes on much larger pension sums will gain relatively little compared to lower-income retirees—the deduction is the same absolute amount but a smaller fraction of their taxable income.
The reform of the flat-rate deduction is planned alongside the de-indexation of retirement pensions in 2026, another measure within the Bayrou government's "white year". This reform could potentially save 550 million euros. The flat-rate deduction of 2,000 euros for retirees is scheduled for the 2026 budget.
However, the application of the deduction for calculating housing assistance has not yet been decided by the executive. If the deduction is not included in the calculation for housing assistance, only 100,000 retirees will see their tax burden decrease. For a single person earning 50,000 euros alone, the deduction will drop from 4,399 euros to 2,000 euros.
On the other hand, the IPP (Institut pour la Planification Economique) estimates that if the deduction is included in the calculation for housing assistance, it would increase social benefits and reduce the tax due for less well-off retirees. This could potentially make the reform more redistributive.
The standard of living for 14 million retirees will not change significantly due to this reform. However, the median standard of living is now equivalent to that of the entire population, as the standard of living of retirees was previously higher than that of active people. The poverty rate of retirees remains 4.4 percentage points lower than that of the entire population (respectively 10% and 14.4%).
The employment of seniors has been authorized for progressive retirement from 60 years old with the publication of a decree in the "Official Journal". For a couple with 40,000 euros in declared income, a 4,000 euro deduction will be subtracted from taxable income. For a couple with 50,000 euros in declared income, the deduction will drop from 4,399 euros to 4,000 euros.
This flat-rate deduction could potentially penalize the pensions of 1.4 million "comfortable" retirees. A single person receiving less than 20,000 euros per year will benefit from this reform. The "white year" aims to cap a large part of public spending at their 2025 level, without taking inflation into account, to reduce the public deficit.
In conclusion, while the flat-rate retirement deduction provides some relief to all retirees, it yields a greater relative benefit to low- and moderate-income pensioners, producing only a mild redistributive effect against higher-income retirees. The decision on whether to include the deduction in the calculation for housing assistance could significantly impact the redistributive effect of the reform.
- The flat-rate retirement deduction in France, set to reduce taxable pension income, is a topic of interest not only in the general-news sphere but also in finance and business, as it could potentially influence the financial situations of millions of retirees.
- The discussion of the flat-rate retirement deduction in France involves not just finance and business, but also politics, as the decision on whether to include the deduction in the calculation for housing assistance could have significant consequences on the redistributive effect of the reform, impacting various sectors of the population.
